Buying a property has become popular again recently and the market in Australia has been booming.
According to a corelogic report, capital gains on real estate saw a 32 year high in March 2021, and are up 10.2% from the September 2020 covid low.
The corelogic report showed further that from April 2020 to April 2021 the median value of a house in Perth rose by $34,648.
In this market, many investors are looking to buy property. But before doing so, consider the five tips listed below.
1. Do your research on the property
In this day and age there is a plethora of free information you can access online when buying a property.
This tip might sound obvious but every bit of information or data point you can add to your decision could mean thousands of dollars, given the value of real estate.
Do your research on the macro picture of how property is trending in that city or region, but also how property values are trending in that area.
You might want to have a look at how that specific property type is doing as well – for example, an outer metro house is different to an inner city unit.
2. Preference properties that have high land content
This is anecdotal but I’ve been a property investor for decades and over the long term I’ve noticed higher land content properties having a higher return.
In my view higher land content properties may have better long term outcomes which means preferencing houses over units, for example.
Of course there is a lot of wiggle room with this tip. Ultimately doing your research comes first, but generally speaking I preference high land content properties.
3. Make sure the property produces cash flow income
When things are looking strong for the real estate market this becomes more achievable.
Producing a cash flow income on property occurs when you buy a house and rent it out, and that rent makes it cash flow positive.
4. Don’t buy the property in your own name
If the property is cash flow positive it is unlikely to be a tax benefit.
That means from a tax perspective it might be more advantageous to not buy the property in your own name.
I use separate Trusts for each property that I purchase so that things like land tax are reduced.
You can also stream income more effectively between Trusts.
Using Trusts for property also means if something happens and you get sued, the properties aren’t at stake.
Learn more about how trusts work here.
5. Get a managing agent who is a professional
If you are handing the regular management of your investment property over to someone else, you need to trust them.
Make sure your managing agent understands the real estate laws including the Residential Tenancy Act.
Ensure that your managing agent not just understands laws, but is able to manage tenants effectively.
This is really important. If you are busy like me, you don’t have time to deal with managing tenants.
If you would like help with ensuring your property investments are as tax effective as possible, please get in touch with us.I want tax help